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French energy firms set 'merger of equals'

PARIS — Gaz de France and Suez on Monday outlined a deal to create Europe's second-largest energy utility, after Électricité de France, in a government-brokered move that fends off a takeover of Suez by Enel of Italy.

A statement issued by both companies after a weekend of intense political and boardroom activity sketched out a "merger of equals" that would see Gaz de France privatized, with the state left holding a blocking minority share and Enel shut out of Suez.

Further details of the deal - including the politically crucial question of which company will have the upper hand in the €72 billion, or $85 billion, combination - were left vague ahead of talks between the French government and skeptical unions.

But the companies said Suez would pay special dividend of €1 a share, for a total of €1.25 billion, before the merger, which will take place on a one-for-one basis.

Gaz de France shares were 14 cents higher at €29.94 in midday trading in Paris, while Suez was €1.75 lower at €32.14.

Finance Minister Thierry Breton of France and the heads of the two companies were holding talks with trade unions on Monday to try to overcome opposition to the deal.

The French government owns just under 80 percent of Gaz de France, which was partly privatized last July. The government will need to change the law to allow it to own less than 70 percent.

But in a move spearheaded by Prime Minister Dominique de Villepin, who announced the outlines of a deal on Saturday, the government has decided to lower its stake in the gas utility to secure its future with the larger Suez in a French-owned group.

Gaz de France was worth €29.8 billion at Friday's close. Suez, which recently bought out minorities in Electrabel of Belgium, was worth €43 billion.

Based on those figures, and taking out the extra €1.25 billion to be paid out by Suez first, the government would end up with a blocking minority stake of about one-third.

"The government's stake will automatically fall below 34 to 35 percent,"Breton said on RTL radio. "But the state also has indirect shareholdings, and overall the state shareholding will be slightly below 40 percent,"

Plans for the alliance have angered Italy, which argues that France's stated policy of "economic patriotism" goes against the spirit of free movement of capital within the European Union.

The merger plan is widely seen as a defensive mechanism to stave off any takeover bid by Enel, although French officials deny building a fortress against foreign takeovers.